Cadillac Tax

On January 22, 2018, Congress passed and the President signed a two-year delay of the 40 percent excise tax on high-cost employer-sponsored health plans, also known as the “Cadillac Tax.” This delay was part of a short-term federal spending bill and changes the effective date from 2020 to 2022. The tax was delayed once before through the Consolidated Appropriations Act of 2016.

No regulations have been issued to date. In February and July 2015, the Internal Revenue Service (IRS) issued notices covering a number of issues concerning the Cadillac Tax, and requested comments on the possible approaches that could ultimately be incorporated into proposed regulations. While the tax was originally non-tax deductible, the December 2015 changes make it tax deductible for employers who pay it.

Help finance the expansion of health coverage under the Affordable Care Act (ACA)

Amount

The tax is 40% of the cost of health coverage that exceeds predetermined threshold amounts.

Cost of coverage includes the total contributions paid by both the employer and employees, but not cost-sharing amounts such as deductibles, coinsurance and copays when care is received.

For planning purposes, the thresholds for high-cost plans are currently $10,200 for individual coverage, and $27,500 for family coverage.

These thresholds will be updated before the tax takes effect in 2022 and indexed for inflation in future years.

The thresholds will also be increased:

If the majority of covered employees are engaged in specified high-risk professions such as law enforcement and construction, and

For group demographics including age and gender.

For pre-65 retirees and individuals in high-risk professions, the threshold amounts are currently $11,850 for individual coverage and $30,950 for family coverage. These amounts will also be indexed before the tax takes effect.

Who calculates and pays

Insured: Employers calculate and insurers pay

Self-funded: Employers calculate and "the person who administers the plan benefits" pays

HSAs and Archer MSAs: Employers calculate and employers pay

How a group health plan's cost is determined

The tax is based on the total cost of each employee’s coverage above the threshold amount.

The cost includes contributions toward the cost of coverage made by employers and employees.

The statute states that costs of coverage will be calculated under rules similar to the rules for calculating COBRA premium.

How the tax will be paid

Forms and instructions for paying the tax are not yet available.

Tax implications

Based on the December 2015 changes, Cadillac Tax payments will be deductible for federal tax purposes.

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